SEC News Digest

Commission announcements

Michael Garrity Named Head of Examination Program in SEC's Boston Regional Office

The Securities and Exchange Commission today announced the appointment of Michael E. Garrity to lead the examination program in its Boston Regional Office.

Mr. Garrity, who immediately begins in his new position as Associate Regional Director for Examinations, will direct a staff of 60 accountants, examiners, attorneys and support staff responsible for the examination of broker-dealers, investment companies, investment advisers, and transfer agents in the six New England states.

Mr. Garrity joined the SEC’s Boston office as an examiner in 2001 and has served as an Assistant Regional Director for the past five years. Mr. Garrity received the SEC Chairman’s Examination Award for Excellence in 2005.

“Mike brings a true passion to the job along with a unique blend of experience as a former private sector lawyer, financial services reporter, and state regulator,” said David Bergers, Director of the SEC’s Boston Regional Office. “His background and his 10 years of experience conducting exams of investment advisers and investment companies throughout New England are a perfect combination to help the Boston examination program continue to fulfill its mission of investor protection.”

Carlo di Florio, Director of the SEC's Office of Compliance Inspections and Examinations, added, “Mike has contributed significantly to the transformation of our national exam program over the past 18 months. His energy, SEC experience, and knowledge of the financial services industry make him a great addition to the examination program’s local and national leadership.”

Mr. Garrity said, “It is an honor to be part of the national exam leadership team and continue serving investors, particularly those individuals and institutions investing to create a secure retirement for Americans. I am fortunate to continue working with the professionals in the Boston office, throughout the SEC, and at other government and regulatory organizations to further the investor protection mission.”

Prior to his SEC employment, Mr. Garrity practiced law at Bingham, Dana & Gould (now Bingham McCutchen) and served as an enforcement attorney for the Massachusetts Secretary of State’s Securities Division. Mr. Garrity also spent approximately 10 years as a reporter for several newspapers and financial services news outlets, and was a public school teacher.

Mr. Garrity, 54, obtained his bachelor’s degree, cum laude, from Marquette University and his law degree from Boston College. (Press Rel. 2011-269)

The Securities and Exchange Commission today charged a longtime Bernie Madoff employee with falsifying books and records in order to hide Madoff’s fraudulent investment advisory operations from regulators.

The SEC alleges that Enrica Cotellessa-Pitz, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 30 years, assisted in falsifying BMIS’s internal accounting records in order to misclassify hundreds of millions of dollars of income purportedly generated by BMIS’s investment advisory operations. Cotellessa-Pitz also falsified financial statements filed with the SEC and other regulators as well as materials that were prepared to deceive SEC staff examiners, federal and state tax auditors, and other external reviewers.

“To keep his massive fraud alive, Madoff had to hide as many facts about his advisory operations as possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Cotellessa-Pitz along with other senior BMIS personnel played a critical role in this effort by creating false documents to deceive federal and state regulators.”

The SEC previously charged BMIS’s Director of Operations David Bonventre with falsifying books and records to hide and obfuscate Madoff’s advisory operations. According to the SEC’s complaint against Cotellessa-Pitz filed in U.S. District Court for the Southern District of New York, she played a central role in falsifying these records as directed by Madoff and Bonventre. Madoff used the false records to artificially improve the firm’s reported revenue and income as well as to deceive regulators who sought to review the firm’s operations and financial results.

The SEC alleges that Madoff instructed employees to transfer hundreds of millions of dollars from bank accounts holding investor funds to the firm’s operating bank accounts. Madoff’s goal was as simple as it was misleading – to use stolen investor funds to hide the significant losses incurred by BMIS’s market-making and proprietary trading operations. Cotellessa-Pitz joined this effort after she was promoted to controller at the firm in 1999, when Madoff and Bonventre instructed her to falsely account for these transfers of investor funds as adjustments to certain securities positions on BMIS’s stock record.

According to the SEC’s complaint, Cotellessa-Pitz then used these figures to calculate and overstate the trading income purportedly generated by Madoff’s market-making and proprietary trading operations. Cotellessa-Pitz included these bogus figures on BMIS financial statements, which she then filed with the SEC and other regulators. Cotellessa-Pitz and other BMIS personnel then falsified documents provided to regulators to obscure the firm’s advisory operations and the transfer of investor funds to the operating bank accounts.

The U.S. Attorney’s Office for the Southern District of New York today announced parallel criminal charges against Cotellessa-Pitz, who has pled guilty and also consented to the entry of a partial judgment in the SEC’s civil case against her. Subject to court approval, the proposed partial judgment will impose a permanent injunction against Cotellessa-Pitz and require her to disgorge ill-gotten gains and pay a fine in amounts to be determined by the court at a later date.

The SEC’s complaint against Cotellessa-Pitz alleges that by engaging in this conduct, she aided and abetted violations of Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3, 17a-4, and 17a-5 thereunder, and Section 204 of the Investment Advisers Act of 1940 and Rule 204-2 thereunder.

The SEC’s investigation was conducted by Aaron P. Arnzen and Kristine M. Zaleskas of the New York Regional Office. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for its coordination and assistance. The SEC’s investigation is continuing. (Press Rel. 2011-270)

Enforcement Proceedings

In the Matter of Benjamin W. Young, Jr.

An Administrative Law Judge has issued an Initial Decision in Benjamin W. Young, Jr., Admin. Proc. No. 3-14482. The Securities and Exchange Commission issued its Order Instituting Proceedings (OIP) on July 21, 2011, pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act). The OIP alleges that on July 5, 2011, the United States District Court for the Southern District of Texas, Houston Division, entered a final judgment against Respondent Benjamin W. Young, Jr. in SEC v. Navigators Int’l Mgmt. Co., Ltd., No. H-07-4518 (S.D. Tex.), permanently enjoining him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Exchange Act, and Exchange Act Rule 10b-5.

The Initial Decision finds it is in the public interest to bar Respondent Benjamin W. Young, Jr., from association with a broker or dealer. (Initial Decision No. 445; File No. 3-14482)

John Hancock Variable Insurance Trust, et al.

An order has been issued on an application filed by John Hancock Variable Insurance Trust, et al. under (a) Section 6(c) of the Investment Company Act of 1940 (Act) granting an exemption from Sections 18(f) and 21(b) of the Act; (b) Section 12(d)(1)(J) of the Act granting an exemption from Section 12(d)(1) of the Act; (c) Sections 6(c) and 17(b) of the Act granting an exemption from Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and (d) Section 17(d) of the Act and rule 17d-1 under the Act to permit certain joint arrangements. The order permits certain registered open-end management investment companies to participate in a joint lending and borrowing facility. (Rel. IC-29885 - December 14)

Self-Regulatory Organizations

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by BATS Exchange, Inc. (SR-BATS-2011-050) to extend the Penny Pilot Program has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of December 19. (Rel. 34-65965)

A proposed rule change filed by NASDAQ OMX BX, Inc. (SR-BX-2011-083) to extend the Penny Pilot Program has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of December 19. (Rel. 34-65966)

Securities Act Registrations

The following registration statements have been filed with the SEC under the Securities Act of 1933. The reported information appears as follows: Form, Name, Address and Phone Number (if available) of the issuer of the security; Title and the number and/or face amount of the securities being offered; Name of the managing underwriter or depositor (if applicable); File number and date filed; Assigned Branch; and a designation if the statement is a New Issue.

Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

5.06

Change in Shell Company Status

6.01

ABS Informational and Computational Material.

6.02

Change of Servicer or Trustee.

6.03

Change in Credit Enhancement or Other External Support.

6.04

Failure to Make a Required Distribution.

6.05

Securities Act Updating Disclosure.

7.01

Regulation FD Disclosure

8.01

Other Events

9.01

Financial Statements and Exhibits

8-K reports may be viewed in person in the Commission's Public Reference Branch at 100 F Street, N.E., Washington, D.C. To obtain paper copies, please refer to information on the Commission's Web site at http://www.sec.gov/answers/publicdocs.htm. In most cases, you can view and download this information by using the search function located at http://www.sec.gov/edgar/searchedgar/companysearch.html.